Sweetness and light: Hold a silver spoon in your portfolio with these top commodity & energy investments
- Estimated global sugar deficit of 4.86m tonnes in 2015/16 (Platts Kingsman)
- Oil prices fell 34% in 2015
- Sugar and oil are THE investments to watch carefully (easyMarkets)
Commodities have been in free fall for months. The S&P GSCI, which tracks commodities, fell 32% in 2015. Yet the headline rout is hiding a tale of one commodity that enjoyed a rather better 2015: sugar.
Sugar began the year on the same trajectory as most other commodities, with the price dropping steadily, but after a low point in September 2015 the sweetest of all commodities began to rally. Since then, sugar has added nearly 4 cents per lb to its price, and Nikolas Xenofontos, Director of Risk Management at leading online trading services provider easyMarkets, believes there could be further good news ahead.
“Sugar is one of the few commodities that might be worth thinking seriously about right now. Intense rains in Brazil, the world’s leading sugar producer, late last year led to a loss of harvesting time. At the same time, Brazil’s biofuel industry is on the rise, meaning that a greater proportion of sugar cane is being used to make ethanol, rather than becoming sugar. It’s a combination of factors that make sugar an attractive short-term investment prospect.”
Sugar prices will need careful attention though. While the heavy rains have impacted on the 2015/16 harvest they may well serve to boost the 2016/17 crush, which begins in April. Platts Kingsman has upped its forecast for the 2016/17 Centre South cane crush to 620m tonnes and further increases to the likely output figure may well impact on sugar prices over the months ahead. Nevertheless, the group still estimates a global deficit in sugar production of 4.86m tonnes in 2015/16, making this a commodity to watch very closely over the coming months.
The other market to consider right now is of course oil. Prices tumbled dramatically during 2015 (Brent crude by 34%) and are likely to continue to do so in the near future, thanks to the global glut. With sanctions on Iran lifted, there was further consternation over the vast oversupply in early 2016. However, many investors are looking towards the end of the year as a potential time for a rebound.
Nikolas Xenofontos of easyMarkets comments,
“Oil prices are set to continue their tumble in the near future but definitely bear watching closely, particularly as the year progresses. Hedging exposure with Options on Crude Oil, following the two-year-old example of the Mexican government, is something for companies impacted by lowered prices to consider right now. Mexico’s Ministry of Energy bought Put Options to protect against an anticipated fall on crude oil and has effectively covered itself from the decline in income.
“Reductions in supply and cuts from high-cost producers may well begin to impact on prices within the next year. For individual investors looking to be in the right place at the right time when prices do start to rise again, the end of 2016 will be an interesting time.”
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